How is the economic surplus generated by a decision calculated?

• A. By adding the producer surplus to the total cost
• B. By subtracting the actual price paid from the willingness to pay
• C. By multiplying the quantity purchased by the market price
• D. By dividing the willingness to pay by the market price

Answer: (B)

Verified step by step guidance

1. Understand that economic surplus is the total benefit to society from a transaction, combining both consumer and producer benefits.
2. Recall that consumer surplus is calculated as the difference between the willingness to pay and the actual price paid by consumers.
3. Recall that producer surplus is the difference between the price producers receive and their cost of production.
4. Economic surplus is found by adding consumer surplus and producer surplus together, representing the net benefit to both consumers and producers.
5. Therefore, the economic surplus generated by a decision is calculated by subtracting the actual price paid from the willingness to pay (to find consumer surplus) and then adding the producer surplus.